In real estate, what does "escrow" typically refer to?

In real estate, "escrow" primarily refers to a legal arrangement for safeguarding funds. This process involves a neutral third party who holds and manages funds or documents on behalf of the buyer and seller during a transaction. The escrow account is established to ensure that all conditions of the sale are met before the money changes hands. Once all contractual obligations are fulfilled, the escrow agent will release the funds to the seller and the necessary documents, such as the deed, to the buyer.

This process is crucial in real estate transactions as it protects both parties involved; it minimizes the risk of fraud and ensures a smooth closing process. By holding the funds in escrow, both the buyer and the seller have an assurance that the transaction will be executed fairly. Thus, the essence of escrow lies in its role as a mediator, providing security and trust in real estate exchanges.